Is the worst over for Sterling? With no financial forecast or data backing the not-so-mini budget, we could see further volatility this week. Markets will look for any clues or leaks from the UK Gov for market direction.
GBP
After Chancellor Kwarteng’s unfunded tax giveaways caused the pound to collapse last week, sterling has bounced back to its pre-mini-budget levels. The BOE intervention in the UK bonds market (gilts) was needed when the real risk of pension fund providers collapsing became clear. This morning’s news that the Chancellor is expected to reverse the 45p top rate tax cut has brought some strength back to the pound. But without any data-driven forecasts for the budget, markets will be looking for further support from the BOE or additional revisions from the government before taking a risk on Sterling.
EUR
Tensions are high in Europe as Russia annexed four regions of Ukraine. President Putin reiterated that an attack on these new regions is a direct attack on Russia and stands to be met with nuclear retaliation. Outside of the apocalypse, Euro inflation hit 10% for the first time in the block’s history. Markets expect a likely 0.75% rate hike from the ECB by the end of this month. Whether this will move the currency largely depends on the broader issues of energy supply and Russia.
USD
The dollar continues to be king, and its strength has been damaging many currencies worldwide. Unlike the rest of the world, the USA’s strong economy has allowed the FED to increase rates without the risk of a full-scale recession. Last week, the FED continued its hawkish rhetoric, insisting that its work will not stop until inflation reaches 2%. This week, there are a few data dockets for the US with the critical Non-farm payroll on Friday. A strong reading may give the dollar more strength as it means the FED has the data backing to continue its hawkish policy.
What to watch this week:
Mon Oct 3
US ISM Manufacturing PMI
Wed Oct 5
USD ISM Services PMI
Fri Oct 7
07:00 UK Halifax House Price Index
13:30 USD Non-Farm Pay Roll